A year can be a very long time, especially for e-commerce firm Aterian (NASDAQ:ATER). ATER stock saw an early 180% in the quarter get wiped out and turn into a painful 81% loss by August.
The company disproportionately bore the brunt of historically severe shipping cost escalations and logistical challenges while battling weaker e-commerce demand as consumers abandoned online stores to visit re-opened physical retail shops as COVID-19 lockdowns eased.
After a false bottoming-out during the first week of December, ATER stock price has continued to weaken in subsequent weeks, even after the company solved its debt crisis and reported a better than expected third-quarter loss.
As it appears, the worst is seemingly over for Aterian. This could be the best time to buy the dip on the beaten-down ATER stock.
Let’s see why.
Debt Woes and Rare Expenses Over for ATER Stock
The biggest threat to Aterian’s business was its debt burden after a default during the second quarter. Although the solution (which included the conversion of debt to equity) came with some penalties and an associated $107 million debt extinguishment loss, ATER stock no longer has a huge debt load. The company is left with a much smaller $25 million debt that matures in 2023.
Aterian has little debt and no elevated interest costs to worry about it rides and conquers the global shipping crisis.
Interestingly, and as speculated before, ATER stock investors didn’t get to read through a rare risk factor that related to some monthly payments of $600,000 to some private-placement investors in the company’s latest quarterly results released in November. About $4 million in cash was at risk.
Management has since applied to register the June 2021 securities in question. The company became free to register the affected shares after settling its hot issues with debtors. There are much fewer unusual cash expenses to worry about going forward.
Acquisitions Could Resume
Aterian was disproportionately impacted by rising shipping costs due to a significant portfolio of outsized goods merchandise. Home appliances consume more space in a shipping container than most electronic gadgets do.
However, the company could start gaining more breathing space and could see its gross margins recover as freight charges normalize in the near future.
Although economists and industry experts see elevated shipping costs persisting well into 2022, the pressures will eventually subside. This isn’t the first time we have seen sea freight rates soar. Dry-bulk shipping charges roared and leaped to historic highs in 2008. But they eventually normalized.
Interestingly, the latest news is that the ongoing shipping crisis at some ports is no longer about an increased number of ships arriving at terminals. Rather, it’s increasingly more of a result of poor port logistical and handling issues. The peak ship-arrivals season could be getting over, already.
What’s next? A gradual return to normalcy? Perhaps not yet, but shipping rates should eventually soften back to near normalized ranges during the coming year as bottlenecks get ironed out.
And this could be wonderful news for businesses like ATER who have been at the receiving end of the crisis and bearing the full brunt of it, or at least a significant portion of it after global e-commerce giant Amazon (NASDAQ:AMZN) stepped in to assist third-party sellers.
Aterian Already Solved Some of its Shipping Problems
During the past quarter, Amazon Global Logistics reportedly offered the company an opportunity to secure competitive shipping rates for approximately 50% of Aterian’s projected revenue in the next 12 months. ATER also secured reduced rates with freight forwarding company Flexport, XPO Logistics (NYSE:XPO) and other logistics providers, as well as selected manufacturing partners in China.
The real risk from persistently high shipping costs for ATER stock is its impact on the going-concern principle. Elevated shipping and logistics costs threaten the business model.
First, the company sources goods from Asia-based manufacturing partners, and it can’t easily switch manufacturing. Inventory shortages reduced earned revenue and margins have suffered as logistics expenses soared. Second, Aterian has been unable to launch new products as shipping uncertainties hold.
And finally, the company has been unable to execute its acquisitions-led growth strategy either, just to avoid compounding its problems.
Understandably, the company discussed the sad going concern discussion in its latest earnings report saying the business may not be sustainable if the crisis persists.
Time to Buy Low?
Trading near $4 a share, Aterian’s stock price is getting closer to crisis-time lows printed in August. Investor sentiment remains largely negative, even as the company’s revenue showed some signs of recovery and fundamentals improve.
Notably, trading volumes on ATER stock have been persistently thinning out lately and reported short-interest has been declining from September peak levels. Although it remains unclear whether short selling data on the obscure dark pool networks and on naked shorts will show the same trend as short-interest data from the stock exchanges, a short squeeze remains a possibility if the company releases any surprising news early in 2022.
ATER stock could be a promising multi-bagger buy-the-dip play at today’s levels. Beaten-down Aterian could generate outsized long-term returns as normalcy returns to the global supply chain, and e-commerce resumes its long-term growth path.
The company will most likely focus on small acquisitions as supply chain problems go away. And it could pounce on larger vulnerable targets as its stock price soars again.
That said, Aterian could also be an acquisition target too.
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On the date of publication, Brian Paradza did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Brian Paradza is an investing enthusiast who was awarded the CFA Charter in 2019. A strong believer in fundamentals-based long-term investing, Brian learns from gurus like Warren Buffett but acknowledges human behavioral tendencies that drive short-term “madness”. You may find him inquisitive as he examines tech investing opportunities, cannabis, blockchains, and the new cryptocurrencies asset class.